Friday, July 9, 2010

We have a small flurry of "good news/bad news" this week. 1) The goods news is that the workers of China are starting to demand their piece of the pie. The bad news is that they are demanding their goodies in the form of increased wages and benefits.

2) The good news is that Chinese goods are going to become less competitive on the global market, perhaps helping to equalize the trade imbalance as foreign goods become cheaper in China just as their domestic goods are becoming more expensive, relatively speaking. The bad news is that a significant number of businesses throughout the world have come to rely on inexpensive Chinese goods to meet consumer demand and maintain their profit margins.

3) The good news is that China appears to be looking at the last low wage frontier in the world: Africa. The Chinese have been securing leases and outright ownership of tremendous amounts of natural resources and land in Africa. It will be a short leap to exploit the low wage rates as well. Africa has countries with the lowest per capita income in the world. Heavy Chinese investment will raise incomes and living standards. The bad news is that China appears to be looking at the last low wage frontier in the world: Africa. The Chinese have been gaining a stranglehold on the vast natural resources of the continent. Little, if any, of the benefit of economic development will go to Africans.

The overall problem is that the world is, to all intents and purposes, still shackled by two types of slavery: wage slavery, and the slavery of past savings. These feed off each other like mutual parasites, for that is what they are. Wage and savings slavery is far more insidious than even chattel slavery, for when another human being is chained and driven to work with a whip, it's more than a little obvious that (absent a crime for which the slave is guilty and has been convicted through due process) something is hideously wrong. That's not to say that "penal servitude" — forced convict labor — is much better, but the usual type of chattel slavery was imposed on people who weren't guilty of anything other than choosing the wrong genetic heritage.

Wage-and-savings slaves even get angry when you suggest that income from a source they do not own, and debt that they can never repay holds them more securely than iron chains. It does little good to point out that through most of history it was easier for a chattel slave to buy his or her freedom than it is today for a nominally free propertyless worker to buy capital and thus his or her economic freedom. Even in the Antebellum South it wasn't too unusual (although very rare) to find a master who paid his or her slaves, and the slaves exercising sufficient thrift and prudence to purchase their freedom.

In ancient Rome it was expected that when a family celebrated an important occasion, such as a coming-of-age or a wedding, slaves would be freed in large numbers. This practice was so widespread that Augustus Caesar complained that too many slaves were being freed. A Roman slave freed under certain conditions became a citizen. According to Augustus, freedmen and women diluted the pure Roman blood descended from fugitive slaves and brigands. Adding insult to injury, some freedmen became so rich that their children sat in the Senate. (You couldn't be elected to the Senate. You had to have the requisite amount of wealth and be unable to come up with an excuse not to serve — another name for the Senate, a most unpopular job, was "the Conscript Fathers." Being a senator imposed heavy financial burdens, and senators could only own land and cash. To prevent conflicts of interest in handing out State contracts, senators could not have commercial interests — one compelling reason to avoid taking a seat in the Senate.)

All is not lost, however. We can see a scenario developing that will save the global economy within the current framework — and all at the low, low cost of untold misery for billions of people, personal and national bankruptcy, war, famine, plague, death, and any other horsemen you want to let loose on the world. Here's how it will go.

Industry moved into China to take advantage of low wage rates. Tracing the movement back to its point of origin, we discover that England took advantage of its colonies the same way in pursuing mercantilism. Cheap labor or other resources were shipped from the colonies to England, which then shipped finished goods to the colonies at a considerable profit. When the American colonies became independent, industrial development took off. Because ownership of the new industries was highly concentrated, most American workers became wage slaves, owning little or nothing in the way of capital.

The slaves, however, organized and formed unions. Instead of demanding ownership, however, they demanded higher wage and benefits packages. This helped fuel the inflationary wage-price spiral that made post-war Japan so attractive as a source of consumer goods. The Japanese workers, not being stupid, then began demanding their piece of the pie. This began shifting industry to Southeast Asia. When wages started getting too high there, it shifted to India and, now, to China. As the cycle repeats, China is now looking to Africa.

So — where will Africa look when the workers wise up and start demanding their piece of the pie? Simple. By the time the African workers get organized and gain enough bargaining strength to bring the wage and price inflationary spiral to the continent to replace the government spending and price inflationary spiral, the American economy will have imploded. Americans will be desperate for jobs created by foreign investment that will start to shift from Africa to take advantage of the lower wage rates in the United States. By the time living standards — and wages and prices — rise to acceptable (to Americans)/unacceptable (to foreign investors) levels, Japan will be on the skids.

You see where this is going. Once it again becomes prosperous, Japan will then shift industry to Southeast Asia, Southeast Asia to India, India to China, and China to Africa . . . .

Problem solved . . . sort of, if you call a continuing problem that never ends, "solved." Of course, if anybody actually wants to solve problems instead of shoving them off on someone else, then the Just Third Way structural changes embodied in Capital Homesteading might offer something than the Same Old Thing Only More So. It's not as if the danger signs weren't there:

• Misunderstandings of money, credit, and banking continue to proliferate, bringing injustice and hopelessness wherever they appear. Today's "Money and Investing" section of the Wall Street Journal, for example, had two articles that even the authors probably didn't realize were related. On page C1 and C3, for example, we found "IPO Pits Profit vs. Altrusim." The article relates how a "micro-lender" in India is going public. Micro-lending operations, such as the outstandingly successful program run by the Institute for Integrated Rural Development (IIRD), are essentially charitable organizations run for the benefit of the borrowers as a means to help lift them out of dire poverty in a manner consistent with human dignity — a hand up, not a hand out. A micro-lender that "goes public" necessarily has a different orientation. Instead of being run for the benefit of the borrowers, the institution now must focus on making a profit for the outside shareholders. This unnecessarily "pits profit vs. altruism," making it appear that profits are somehow evil or inconsistent with ethical behavior. The other story, on page C2 ("Spain Orders Biggest Bank Overhaul"), relates how Spain's cooperative banks, owned by the depositors, will now be open to outside ownership as well, again shifting the emphasis from mutual cooperation to exploitation. We are coming around to the opinion that all banks of deposit (as opposed to commercial banks of issue) and all insurance companies should — maybe even must — be owned by depositors and policyholders, respectively, with no outside shareholders except for employees who surrender their shares on termination of employment, or a separate management company is hired to administer the bank or insurance company for a contract fee, with no ownership stake.

• The buzz on the internet today is that a rather large number of old and well-established companies are getting ready to bite the dust. This tends to give the lie to the mindless optimism about the so-called "recovery" and the salvific power of capitalism — or socialism. To this we add this morning's report that consumer borrowing has decreased dramatically (meaning enough to hurt retail sales but not enough to help consumers get out of debt slavery), causing projections of sustainable consumer demand to drop significantly. Well, who cares, as long as the stock market balloons up, and we can party like it's 1928?

• Wholesale inventories are up and retailers are not restocking in the face of a downturn in consumer demand. Not to worry, because the stock market is up . . . at least for this week. Small comfort to the non-survivors of last week's crash. So what if demand for new capital that drives the economy is derived from consumer demand. The economy is doing fine . . . if by "economy" you mean enormous increases in government spending and massive money creation to fuel speculation on Wall Street.

• Enough of general despair. There truly are some good things happening. Earlier this week Norman Kurland met with two Islamic scholars about a possible media project in Central Asia. There is a potential tie-in with the "Justice University" proposal. One thought was to establish different "colleges" for different religions and schools of belief under the general umbrella of Justice University. We are planning a meeting later this year with scholars from Christianity and Judaism to discuss the project.

• Former Ambassador Curt Winsor, Jr., brought together a number of friends of Joe Recinos for an informal celebration of Joe's birthday on Wednesday evening. As might be expected, the evening resulted in some lively discussions on the Just Third Way. Curt's main contribution to the Just Third Way was in using his influence to get some of the funding for the original publication of Capital Homesteading for Every Citizen (2004) from the Donner Foundation. The book is now in revision to expand some of the financial projections and update other information in light of the current Great Recession and the "War of Ideas."

• This morning, after many and various delays (which were no one's fault — time is definitely a scarce resource here), we got the files for The Formation of Capital and Supporting Life submitted to the printer. We expect to receive proof copies sometime next week, and to sign off on the release of the books at that time. If all things go according to schedule, the books may be available for sale to the general public before the end of July. Wholesale orders will be accepted as soon as we sign off and authorize the printing. The retail price of The Formation of Capital is $20.00, and the wholesale price is $16.00. The retail price of Supporting Life is $10.00, and the wholesale price is $8.00. CESJ members are entitled to the wholesale price of all publications. Shipping is additional.

• As of this morning, we have had visitors from 41 different countries and 43 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, Canada, Brazil, the UK, and Poland. People in Argentina, Spain, the United States, Venezuela, and the Czech Republic spent the most average time on the blog. The most popular posting is still the piece on "Le Armée Catholique et Royale" from the "Out of the Depths" series on French financial experiments. This is followed by the weekly "News from the Network," the "Production is the Key" posting from the "Out of the Depths" series, and the short posting on the renewed interest in Friedrich von Hayek.

Those are the happenings for this week, at least that we know about. If you have an accomplishment that you think should be listed, send us a note about it at mgreaney [at] cesj [dot] org, and we'll see that it gets into the next "issue." If you have a short (250-400 word) comment on a specific posting, please enter your comments in the blog — do not send them to us to post for you. All comments are moderated anyway, so we'll see it before it goes up.